Primark margins under pressure at AB Foods

12th Sep 2011 07:37

The second half of its financial year has been much as expected for Associated British Foods, the foods group which also owns the Primark retail chain.The group's adjusted operating profit for the second half of the financial year will be in line with expectations, a company statement said, while adjusted earnings for the 52 weeks to 17 September will, as previously indicated, be similar to the level seen last year, which was a 53-week year.Last year's finance charge for the group's defined benefit pension schemes will be replaced this year with finance income as a consequence of an increase in the market value of pension scheme assets at the end of last year. The underlying tax rate for the year will be lower than last year, and some 2% lower than that used in the interim results, reflecting the further reduction in the UK corporation tax rate and the mix of profits in different tax jurisdictions.This year's higher level of capital expenditure and increased working capital, from substantially higher commodity costs, resulted in a higher level of net debt throughout the year. At the year end net debt is expected to be some £1.2bn.Sales at Primark will again be well ahead of last year and are expected to be up 13% compared to last year when adjusted for 52 weeks' trading, driven by an increase in retail selling space and further like-for-like sales growth. The company expects to achieve 3% like-for-like year-on-year sales growth for the full year, maintaining he growth rate seen in the first half of the financial year, with some growth in the UK and Ireland, despite weaker consumer demand in the second half, and continental Europe strongly ahead. There has been a higher level of discounting than is normal towards the end of the summer season on the UK high street and operating margin is expected to be a little lower than previously forecast as a result. In the Sugar business, revenues continued to improve in the second half, driven by strong performance in both China and Spain, which more than offset the absence of export sales from the UK and lower sales in South Africa.The Agriculture business saw revenue ahead of last year in all sectors, driven by commodity price increases in UK feed and strong growth in feed enzymes, speciality feeds and nutrition.Grocery revenues and profit for the full year are expected to be ahead of last year. "Twinings Ovaltine and our UK grocery businesses performed well and profit also benefited from a lower charge for restructuring. However, the trading performance at George Weston Foods in Australia has been much weaker than previously expected," the company said.--jh